Endurance Specialty To Be Purchased By SOMPO For $6.3B
Zacks Investment Research | Oct 06, 2016 10:09PM ET
Endurance Specialty Holdings Ltd. (NYSE:ENH) recently announced that it has inked an agreement to be acquired by SOMPO Holdings, Inc. for a cash payment of $6.3 billion. The transaction, which is pending shareholders’ approval, is expected culminate by Mar 2017. The acquisition will help SOMPO Holdings fortify its U.S presence.
Transaction Details
The purchase consideration of $6.32 billion translates to $93 per share. The transaction price represents about 40.3% premium to Endurance Specialty's closing stock price on Oct 3, 2016.
According to the definitive agreement signed by the companies, Tokyo-based SOMPO Holdings will finance the purchase consideration using the existing sources of liquidity as well as additional facilities without a financing emergency. SOMPO Japan NI Inc., the wholly owned subsidiary of SOMPO Holdings, will execute the transaction.
Acquisition Rationale
The acquisition of Endurance Specialty complements SOMPO’s strategy to expand its overseas insurance business. Bermuda-based Endurance Specialty has evolved over the years to become a global specialty provider of insurance and reinsurance operations. The company now boasts significant presence in the U.S., the U.K. and Bermuda. The company is the fifth-largest company in the U.S.(based on underwriting insurance fees for 2015) in underwriting crop insurance. According to Kengo Sakurada, President and CEO of SOMPO Holdings, “Today's agreement marks the beginning of SOMPO's overseas transformation which undoubtedly enhances the quality and reach of our insurance services. Endurance brings strength in the primary insurance business in developed market.” SOMPO Holdings expects the acquisition to boost its return on equity.
SOMPO Holdings’ strategic buyouts as well as strong operational profile have been driving its bottom-line growth. Notable acquisitions by the company include Turkey-based FibaSigortain 2010, Malaysia-based Berjaya SOMPO in 2011, additional stake in Brazil-based Maritima in 2013 and the acquisition of Canopius in Lloyd's in 2014. The acquirer primarily eyes buyouts that are likely to boost its primary insurance business in developed as well as emerging markets.
SOMPO Holdings eyes adjusted consolidated profit of $2.9 billion (JPY 300 billion) and adjusted consolidated ROE of more than 10% from fiscal 2020 onward. This transaction will result in $0.3 billion (JPY 32.1 billion increase in adjusted consolidated profit from $1.6 billion (JPY 164.3 billion to $1.9 billion (JPY 196.4 billion) and a 130 basis points increase in adjusted consolidated return on equity to 8.2% from 6.9%. Income from SOMPO's overseas insurance business as a percentage of the total group income would jump to 27% from 12% presently.
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